Fairfax in radio merger talks with Macquarie

It is understood Fairfax Media and Macquarie Radio are in preliminary talks about a joint venture, which would combine Fairfax stations such as Melbourne’s top rated 3AW with Macquarie’s 2GB, the home of shock jock Alan Jones.
Photo: Marina Neil

Fairfax Media
would emerge with substantial shareholder and management control if a potential merger of its radio assets with
John Singleton
’s
Macquarie Radio Network
comes to fruition.

It is understood that both sides are in preliminary talks about a joint venture, which would combine Fairfax stations such as Melbourne’s top rated 3AW with Macquarie Radio’s 2GB, the home of shock jocks
Alan Jones
and
Ray Hadley
. There is no guarantee that the early stage discussions will result in a deal, which would create a combined AM network with earnings before interest, tax, depreciation and amortisation of $32 million.

No advisers have been appointed and no agreement has been reached as regards any structure for the deal, such as whether the new entity would be listed or private.

It is believed Fairfax has agreed to once again entertain overtures from Macquarie on the proviso that Fairfax retains the dominant equity position and management control.

Macquarie owners Mr Singleton and
Mark Carnegie
control a smaller business and might be tempted to take cash out of the merger.

The two sides held abortive talks two years ago when Fairfax, publisher of The Australian Financial Review, considered selling its radio assets to Macquarie Radio for around $220 million.

Fairfax walked away from the talks after Macquarie could not provide adequate funding for the proposed deal.

A merger could produce cost savings but the main logic would be to produce an entity with leading talkback stations in all the capital cities – a stronger proposition to sell to advertisers.

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Macquarie Radio’s 2GB dominates talkback in Sydney, where Fairfax’s 2UE is weak, but Fairfax’s radio stations are better rated elsewhere, led by 3AW but also including Brisbane’s 4BC and Perth’s 6PR.

A combined group would have to sell some stations to satisfy cross-media ownership restrictions, but Fairfax’s radio assets would form the larger part of the group. They were recently valued between $167 million and $297 million on a stand-alone basis by Morgan Stanley.

Macquarie Radio was valued at $78 million at close of trade on Friday. On Monday, its shares closed 3 per cent higher at $1.03, while Fairfax shares closed flat at 55¢.

Mr Singleton and investment banker Mr Carnegie acquired a small stake in Fairfax last year through their Gutenberg Investments vehicle. They “agreed to consult" with Fairfax’s 15 per cent shareholder,
Gina Rinehart
’s Hancock Prospecting.

The radio group said it was “forced to suspend all advertising in Alan Jones’ breakfast show for a short period" after a “massive social media campaign against Jones and 2GB, and directed specifically at forcing advertisers to withdraw their support for the station".

Macquarie’s attempts to break into the Melbourne market through a new venture, MTR, have been unsuccessful.

The company’s reported net profits after tax have tripled to $9.1 million, reflecting extraordinary items such as the previous year’s inclusion of its share of operating costs and losses associated with its Melbourne MTR joint venture (disposed of in May 2012), the transaction costs associated with its bid for Fairfax Radio and its acquisition of Smart Radio Network, and a non-recurring employee options expense.

“Our underlying results, however, were disappointing," chairman
Russell Tate
wrote in the full-year accounts. “We were also disappointed in the first half of the year by the revenues generated from our London Olympic broadcasts, and a Sydney radio market which failed to regain any real momentum in the second half of the year despite strong growth in other markets."